The Growth AgendaChemChina’s acquisition of German plastics and rubber processing KraussMaffei...

The Growth AgendaM&A in Europe, the Middle East and Africa 2016

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Welcome 2European M&A in post-Brexit world 3M&A in the Middle East & Africa: Beyond commodities 8Market Insight: Uncertainty In Europe 11About Donnelley Financial Solutions 14

CONTENT

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M&A in Europe, the Middle East and Africa 2016 2

Dear Valued Reader,

Welcome to Donnelley Financial Solutions’ report on global M&A trends produced in collaboration with Mergermarket. In this report, we are highlighting dealmaking trends in the EMEA region.

Global M&A has reached new heights over the past two years with multinational blockbuster deals across all sectors regularly hitting the headlines. So far in 2016, the pace has slowed somewhat amid economic and political uncertainty in Europe, particularly surrounding the UK’s Brexit vote, and in the US ahead of its presidential election. Nevertheless the deal pipeline remains active, especially considering that M&A is more often than not a lengthy process, particularly for larger deals and cross-border transactions. As M&A has become a staple for corporate growth globally, leveraging and marketing the impact of a new deal has also become part of this increasingly complex and sophisticated process. Technology has changed the pace, scale and overall approach to the ways dealmakers create, establish and evaluate investment relationships. Donnelley Financial Solutions supports the full life-cycle of communications and deal management relevant to a transaction of any type. As a stand-alone company, we are ever-more committed to growing our full breadth of deal offerings. One example of this commitment is our investment into interactive communications provider Peloton Docs, which powers our Venue Deal Marketing Solution. Venue Deal Marketing enables clients to manage their M&A process in a new dynamic way, making use of advanced digitisation and automation to communicate a company’s value like never before. With this report, we are looking to contribute to the narrative and keep you updated on the current global M&A flows and drivers. We hope that you will find these insights useful to better inform your own business considerations and strategic plans for the future.

Sincerely,

Craig Clay President, Global Capital MarketsDonnelley Financial Solutions

WELCOME

3 The Growth Agenda

After two years of feverish dealmaking in Europe, M&A activity has cooled in 2016 amid economic and political turbulence on the continent.

In the first nine months of 2016*, deal volume was 13% lower with 4,336 deals, compared to the same period last year, while deal value slumped 16% to US$501.5bn.

Despite the slowdown, activity remains solid and closely resembles the slightly less frantic dealmaking pace of 2013.

Over the past couple of years, easily available financing and a loose monetary policy by the US Treasury helped investors fund expansion in new businesses and new geographies. However, at the beginning of 2016, a rise in interest rates in the US and stock market volatility made dealmakers more hesitant, and the political headwinds sweeping around the UK’s EU referendum in June did little to help confidence.

However, post-referendum, a few major deals seemingly demonstrated

In the first nine months of 2016, European deal volume was 13% lower while deal value slumped 16% to US$501.5bn

EUROPEAN M&A INPOST-BREXIT WORLD

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5608 5477

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European M&A 2011-2016 (YTD*)

Deal Volume Deal Value

The past two years have seen deal volumes and values hit new heights. However, global uncertainty has caused dealmaking to ease off in 2016.

* Q3 data up to 13 September


renewed confidence among larger multinational players looking to take advantage of favorable valuations and exchange rates. Among these was Japanese SoftBank Group’s acquisition of UK semiconductor manufacturer ARM Holdings for US$30.2bn.

Asia’s inbound marchThe aforementioned deal was part of a larger trend of Asian investment in Europe, in particular from China, which reached a record high in 2016 with 104 inbound deals worth US$76.5bn. The DACH-region was the main beneficiary of Chinese investment, making up 75% of inbound deal value from China.

European M&A 2011-2016 (YTD*)

This total included megadeals such as Midea Group’s acquisition of a majority stake in robotics manufacturer KUKA AG in Germany for US$4.3bn, and ChemChina’s acquisition of German plastics and rubber processing KraussMaffei Group for US$1bn, and Swiss agribusiness Syngenta for US$45.9bn.

As the fossil-fuel-driven downstream segments suffer from oversupply, ChemChina’s bid for seed producer Syngenta embodies much of the current effort to diversify its chemicals portfolio to support China’s rising demand for food and consumer goods.

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Transatlantic M&A remained solid with the US as the top inbound investor into Europe, and Canada also among the top five. The relationship remains strong despite a desire by the US Treasury to rein in tax inversion deals into Europe, which eventually led to the collapse of the US$183.7bn bid for Ireland-based Allergan by US pharma giant Pfizer. Nevertheless, clearance was given in April to the reverse merger between US industrial company Johnson Controls and Irish safety components manufacturer Tyco International worth US$16.2bn.

The advantage of a stronger US dollar against the euro and the post-Brexit sterling still make European


5 The Growth Agenda

assets attractive for overseas acquirers. Apart from an appetite for industrial & chemicals assets, US investors focused on the TMT and business services sectors, in particular in the UK, including deals such as the acquisition of UK-based Markit by analytics provider IHS for US$6.2bn.

Reverse transatlantic relations also remained strong with the US as Europe’s top outbound target, reaching new heights in 2016 via German

chemicals giant Bayer’s acquisition of US-based Monsanto for US$65.3bn.

Industrials lead the wayThe industrial and chemicals sector remains a stable sector for European M&A, leading both deal volume and value with 21% and 24% of total M&A activity.

One of the biggest deals was engineering giant Siemens’ acquisition of Spanish Gamesa Corporation for US$7.5bn to

create a dominant wind turbine manufacturer. This is in line with a strategic reorganisation by a number of companies that are strengthening their core businesses through M&A, divesting non-core assets and gaining market share in core businesses through acquisitions in other European markets.

The second biggest sector in terms of value was financial services with 17% of total European deal value in the first nine months of

Top Five European M&A Deals 2016 (YTD*)

Target Company Target Sector Target Country

Bidder Company Bidder Country

Deal Value USD(m)

Syngenta AG Industrial & Chemicals SwitzerlandChina National

Chemical Corporation

China 45,860

ARM Holdings Plc (98.55% Stake)

TMT UKSoftBank Group

Corp.Japan 30,165

Credit Agricole - Regional Banks

(25% Stake)Financial Services France

Sacam Mutualisation

France 20,411

Westdeutsche Genossenschafts-

ZentralbankFinancial Services Germany DZ Bank AG Germany 19,385

Tyco International plc

Industrial & ChemicalsIreland

(Republic)Johnson Controls,

Inc.USA 16,166



Deal Volume

Deal Value16%

6%

5%

7%

14%17%

7%

3%

21%

24%

5%

4%

14%

16%1%

5%

1%

7%

9%

5%

0%6%

1%2%3%

1%

Key:

Agriculture Business Services Construction Consumer Defense Energy, Mining and Utilities Financial Services Industrial & Chemicals Leisure Pharma, Medical, Biotech Real Estate TMT Transportation

European M&A by Sector 2016 (YTD*)2016. Consolidation in the financial services sector continues as regulatory requirements press on with the implementations of Solvency II for insurers in 2016 and the capital adequacy requirements for banks under Basel III.

This was the driver for the sector’s largest transaction, French Credit Agricole’s sale of a 25% stake in its regional bank portfolio to French Sacam Mutualisation for US$20.4bn in order to comply with increasing capital requirements. A higher capital ratio was also achieved by DZ Bank through the acquisition of Dusseldorf-headquartered Westdeutsche Genossenschafts-Zentral bank for US$19.4bn, allowing it to strengthen local German cooperative banks.

Meanwhile in Italy, with the government scrambling to provide a restructuring for distressed Italian banks together with private investors, the newly-founded Atlante investment vehicle under the auspices of Quaestio Capital Management took a 99.33% stake in Banca Popolare di Vicenza for US$1.7bn and a 97.64% stake in Veneto Banca for US$1.1bn. Consolidation also continued with the US$4.2bn merger between commercial bank Banco Populare di Milano and Banco Popolare Societa Cooperativa in March. * Q3 data up to 13 September

7 The Growth Agenda

In Southern, Central and Eastern Europe, distress-driven sales and restructurings continue to spur dealmaking, presenting an interesting mid-market range of industrial and consumer assets as well as larger financial services assets. However, some of the larger slated privatisations such as Telekom Srbija and Odessa Portside Plant in the Ukraine are still on hold.

Slower but steadyEuropean M&A activity was solid in 2016, and remained deeply anchored in corporate strategies to pursue growth. While in the previous two years megadeals hit the headlines, this year dealmakers were more cautious amid tightening regulation, slowing the pipeline for these blockbuster deals in sectors such as PMB (Pharmaceuticals, Medical and Biotech). However, the fallout from past megamergers continued to spark activity in 2016. For example, AB InBev’s takeover of UK-based SABMiller led to SABMiller’s divestment of Royal Grolsch, Birra Peroni and Meantime Brewery to Japanese Asahi Group for US$2.9bn.

In many European countries, dealmaking continues to thrive in the mid-market space, especially in the industrial and chemicals and consumer sectors in the DACH region, the Benelux, Italy and France. The utilities and renewables space is also expected to continue to heat

up as both the domestic European and global energy markets are in flux. US PE firms, for example, already conducted several deals in this growing segment over the past couple of months, including Global Infrastructure Partners’ 50% stake in the 330MW German offshore windfarm Gode Wind for US$872m. But there are also niche opportunities such as a private investor snapping up a windfarm developer in Latvia where the Baltic Sea offshore potential is increasingly being considered.

As Europe suffers the slings and arrows of political fortunes, many expect the aftermath of Brexit to bring short- to medium-term uncertainty to UK and European dealmaking. In the UK, deal volume has slowed by 20% compared to Q3 2015, but value has plummeted by 53%, which may also indicate pressure on valuations. Ultimately, this may be good news for overseas investors looking for technology and IP in strong European brands. Continued low interest rates may also underpin another robust dealmaking streak in Europe.

In the UK, deal volume has slowed by 20% compared to Q3 2015, but value has plummeted by 53%


M&A in the Middle East and Africa (MEA) was driven both by domestic dynamics, such as growing consumer demand and consolidation in saturated markets such as telecoms, and the global impact from depressed commodities prices and currency fluctuations with governments subsequently seeking to diversify their economies and create cost savings.

Deal value in the Middle East and Africa (MEA) region spiked 125% to US$59.5bn in the first 9 months of 2016 compared to the same period in 2015, amid a 30% slowdown in deal volume compared to last year.

The jump in deal value stems from an increase in large ticket deals above US$1bn which went up from seven deals worth a combined US$23bn to ten deals worth US$38.2bn.

The three most active countries were Israel, South Africa and UAE accounting for 66% of the region’s total deal volume.

From Far East to Middle EastIn 2016 to date, the US and the UK were the most active buyers in the MEA region. However, Germany and China led by deal value, with China

Dealmaking in the Middle East and Africa saw a surge in big-ticket deals but a drop in volume. Meanwhile, the big names in the regions were particularly active.

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M&A Africa & Middle East 2011-2016 (YTD*)

accounting for close to one-third of total deal value. As part of China’s general outbound trend of securing growth overseas, investments in the Middle East have increased. Israel was the top draw in the region for foreign investors in general, accounting for a quarter of the region’s combined deal volume, and for China in particular. Value targeting Israel has jumped from a historical five-year average of US$1.2bn to US$6.6bn from six deals in 2016. Among the acquired assets were software companies and agrochemicals businesses.


M&A IN THE MIDDLE EAST & AFRICA: BEYOND COMMODITIES

The US remained the largest inbound investor making up 30% of inbound deal volume into Israel, mainly targeting software and PMB assets.

Asian interest also reached as far as Jordan with the acquisition of the Attarat Power Plant by Malaysian YTL Power International and Chinese Guangdong Yudean Group for US$1.3bn. The development is geared towards utilising Jordan’s oil shale resources and is expected to reduce the country’s dependence on energy imports.


9 The Growth Agenda

Out of AfricaLast year, South African businesses and PE firms, concerned with currency depreciation, aggressively sought growth through outbound investments with large deals such as Johannesburg-based Brait acquiring UK-based retailer New Look Group for US$3bn and Virgin Active Group for US$1.6bn. The trend of less intra-regional dealmaking and a stronger outbound focus from South Africa continued into 2016 with Steinhoff International’s bid for UK-based retailer Poundland for US$640m in early July and US-based Mattress Firm Holding for US$3.9bn.

As part of its national economic restructuring programme, Saudi

Arabia’s Public Investment Fund is also diversifying abroad by acquiring a 5.6% stake for US$3.5bn in US-based Uber technologies. With pressure coming from the continued depression in oil prices, this trend is expected to continue.

Financial trumps commodities Traditionally, the leading sector across MEA, energy, mining and utilities M&A has slumped with activity at almost half of the 2015 levels. In the meantime, the consumer, TMT and financial services sectors have taken up the dealmaking slack in the MEA region.

The UAE showed strong domestic activity aimed at creating operational synergies and cost savings. One such

Target Company Target Sector Target Country

Bidder Company Bidder Country Deal Value USD(m)

First Gulf BankFinancial Services

UAENational Bank of Abu

Dhabi PJSCUAE 14,841

Bid Corporation Limited

Consumer South AfricaBidvest Group Limited

(Shareholders)South Africa 5,793

United Arab Shipping Company (S.A.G.)

Transportation Kuwait Hapag-Lloyd AG Germany 5,400

Playtika Ltd TMT Israel

A Consortium Led by Chongqing

New Century Cruise Co., Ltd.

China 4,400

Kuwait Food Company (Americana) K.S.C.P

Consumer Kuwait Adeptio LLC UAE 3,175

deal, the biggest in the region, saw the merger of two listed commercial banks, First Gulf Bank and the National Bank of Abu Dhabi, in a deal worth US$14.8bn. The new strengthened entity is intended to support the private sector and drive international business inside and outside of the Middle East. Abu Dhabi is also said to be looking to merge its two sovereign wealth funds, Mubadala Development Company and the International Investment Company, whose combined assets are estimated at US$127bn.

In 2016, transportation was among the top sectors in terms of deal value. This development stemmed mostly from the consolidation in the heavily distressed shipping industry, which


Top Five Africa & Middle East M&A Deals 2016 (YTD*)


has yielded one of the top targets in the MEA region with German HapagLloyd AG making a US$5.4bn bid for Kuwaiti cargo manager United Arab Shipping Company.

Telecoms remained an active sector throughout Africa. In Nigeria, Helios Towers Nigeria was taken over by mobile infrastructure provider IHS Holdings for US$500m, while South African carrier MTN snapped up Visafone Communications for an undisclosed amount.

Beyond energySaudi Arabia’s National Transformation plan is expected to yield opportunities for future inbound investment in several key sectors as the country reorganises its economy.

In terms of inbound interest, economic restructuring is likely to influence dealmaking in other countries across the MEA region as well, where the public and private sectors are seeking to cut costs and to attract foreign investors to

non-hydrocarbon-related sectors. This will likely result in attractive propositions in the consumer and healthcare markets in line with strong population growth and rising incomes.

However, opportunities may also arise from distressed assets in natural resources, where balance sheets continue to suffer from the commodities gloom. When quality assets in this segment come to market, there is expected to be competitive buyer interest.

Deal Volume

Deal Value12%

22%

11%

2%

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1%

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9%

19%

17%

6%

8%

9%

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Agriculture Business Services Construction Consumer Defense Energy, Mining and Utilities Financial Services Industrial & Chemicals Leisure Pharma, Medical, Biotech Real Estate TMT Transportation

M&A Africa & Middle East by Sector 2016 (YTD*)


This available pool of capital is the main driver of deals in Europe right now. However, the interest rate environment across Europe is forcing investors to look for alternative asset classes and smart places to invest their capital. The private equity and alternate debt communities have raised significant funds, which maintain this pressure to keep investing, helping with deal flow.

The industrial sector is leading the way for M&A activity right now and we are seeing that especially in the UK and Germany – as measured by the wider market statistics, but also our own mandate and pitch activity. In addition to financial investors, corporates are looking more closely at their cost of capital, and how efficiently they are utilising it. We are seeing an increase in the number of corporates that are looking to engineer carve-outs and disposals of subsidiaries.

Brexit – pros and consBrexit, while having some negative impacts on the European deal market, is also encouraging cross-border activity. Due to the currency movements seen in the last few months, we are seeing an increase in US and Asian corporates looking to invest in Europe – it is now 15% better value for them to do so, and with our international network, this is proving to be a popular area of focus for our clients.

Brexit in itself is not holding back M&A activity, but it does serve as a ‘reason’ not to do something. Uncertainty, around a number of sectors, for example consumer-facing sectors, is causing investors and strategic buyers to think very hard about how and when they invest. This uncertainty, fed by the ambiguity of what a post-Brexit Britain might look like, is delaying investment decisions and we think this is going

MARKET INSIGHT: UNCERTAINTY IN EUROPE

The European M&A climate is performing well, yet inconsistently. There are certainly deals being done, especially in the mid-market, but not as steadily as we have seen in previous years, both in terms of volume and quality. That said, there is still considerable appetite to carry out transactions and we see significant pools of capital that need to be invested. Strategic buyers are keen to invest and the debt market, especially the alternative debt market, remains strong.

11 The Growth Agenda

Henry WellsManaging Director and Head of UK M&A,Duff & Phelps

Henry Wells is a managing director and head of M&A in Duff & Phelps’ London office as part of the Global Mergers and Acquisitions Advisory practice. He has more than 15 years of corporate finance advisory experience, focused on mid-market European companies and investors. Henry advises clients on a wide range of corporate finance transactions including private and public company disposals and acquisitions. His clients include corporate shareholders, private equity houses and management teams.

to continue for some time. The M&A-related issues thrown up by Brexit are not going to be solved any time soon, so I think we’re going to have to learn to live with it - but it makes doing deals harder.

We have seen this uncertainty have a knock-on effect onto the IPO market, which feels shaky at the moment. In the UK, there have been a considerable number of IPOs pulled or significantly re-priced, largely because sellers’ expectations are not being matched.

In addition, in the post-Brexit environment, we are also seeing deals not happening as sellers have unrealistic price expectations. One theme is where sellers who own good businesses are pointing to values achieved by the best-in-class businesses, and determining that they want that same multiple.

Over the next six to twelve months, it will be interesting to see how the Brexit impact continues to play out, but one thing is for sure, Brexit will continue to have an impact on M&A activities that involve UK businesses in 2017 and beyond.


The private equity and alternate debt communities have raised significant funds, which maintain this pressure to keep investing, which helps with deal flow.

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